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US Thrifts Set Aside $7.6 Billion for Loan Losses

Reuters
Tuesday, 27 May 2008 | 1:32 PM ET

U.S. thrifts are being urged to set aside more money for bad mortgage loans after reporting record loan loss provisions totaling $7.6 billion in the first quarter due to the deteriorating American housing market, the Office of Thrift Supervision (OTS) said Tuesday.

The savings and loan industry, which includes many mortgage lenders, had loan loss provisions of $5.5 billion in the fourth quarter of 2007 and $1.2 billion in the first quarter of 2007, the OTS said.

The OTS, which regulates more than 830 U.S. thrifts, said it encouraged institutions to set aside more loan loss provisions going forward.

"I have been urging managers of OTS-regulated thrift institutions to be aggressive in setting aside provisions for expected loan losses," OTS Director John Reich told reporters at a briefing to release the quarterly industry data.

"This forceful response to the housing market crisis continues to depress industry earnings, but it also strengthens institutions to withstand future challenges," Reich said.

Troubled assets, which include noncurrent loans and repossessed assets, were 2.06 percent of assets in the first three months of this year, up from 1.66 percent in the fourth quarter of 2007, the OTS said.

In a sign of the continued housing slump, total mortgage origination volume dipped 20 percent in the first quarter of 2008 from the last three months of 2007, according to regulators.

Thrifts posted a net loss of $617 million in the first quarter, an improvement from a loss of $8.75 billion in the fourth quarter of 2007, the agency said.

The industry's fourth-quarter 2007 loss was revised higher from $5.24 billion, the agency said. The change reflects a restatement by a big unnamed institution, the OTS said.

The number of problem thrifts rose by one to a total of 12 institutions at the end of March 2008 from December 2007, the OTS said. It does not identify troubled institutions.

Despite the big loan loss provisions, a key industry profit measurement showed improvement in the first quarter of 2008. The industry had a negative 0.16 percent return on average assets in the period, compared with a negative 2.31 percent in the fourth quarter, the agency said. In the first quarter of 2007, the industry's profitability was 0.97 percent.

The largest U.S. thrift, Washington Mutual last month announced it raised $7 billion in new capital from investors and planned to cut up to 3,000 jobs and slash its dividend. Another big thrift, Countrywide Financial agreed in January to be acquired by Bank of America .

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